Energy Bill [HL]

Lord Lennie Excerpts

Committee stage
Monday 5th September 2022 Lords Chamber

Moved by

[Lord Lennie]

1: Before Clause 1, insert the following new Clause—
“Part A1Purpose and strategy and policy statementPurpose (1) The principal purpose of this Act is—(a) to increase the resilience and reliability of energy systems across the United Kingdom,(b) to support the delivery of the United Kingdom’s climate change commitments, and(c) to reform the United Kingdom’s energy system while minimising costs to consumers and protecting them from unfair pricing. (2) In performing functions under this Act, the relevant persons and bodies must have regard to—(a) the principal purpose set out in subsection (1),(b) the Secretary of State’s duties under sections 1 and 4(1)(b) of the Climate Change Act 2008 (carbon targets and budgets) and international obligations contained within Article 2 of the Paris Agreement under the United Nations Framework Convention on Climate Change,(c) the desirability of reducing costs to consumers and alleviating fuel poverty, and(d) the desirability of securing a diverse and viable long-term energy supply. (3) In this section “the relevant persons and bodies” means—(a) the Secretary of State;(b) any public authority.”Member's explanatory statement
This amendment, along with other new clauses before Clause 1, add a new Part setting out the purpose of the Bill and a requirement for a Strategy and Policy Statement in line with this Act.

[Lord Lennie (Lab)]

My Lords, Amendments 1 to 4 and 245, along with other new clauses before Clause 1, add a new part setting out the purpose of the Bill and a requirement for a strategy and policy statement in line with the purpose of the Act.

The context for this is threefold. First is the cost of living crisis: the energy cap has risen to £3,549 a year for an average household, and National Energy Action, of which the noble Baroness, Lady McIntosh, is chair, predicts that the number of households in fuel poverty will rise to 8.9 million.

The second is net zero: the Conservative leadership candidates—including Liz Truss, the new Prime Minister—ran away from this during the recent campaign. The High Court found that the net-zero climate strategy is inadequate, and the Climate Change Committee found that credible plans existed for only 39% of emissions, citing “major policy failures” and scant evidence of delivery. The 2021 International Energy Agency report found that the current commitments will not achieve net zero on schedule as they fall well short of what is needed to reach net zero by 2050.

The third is energy security: gas prices are expected to surge to record highs this week after the Nord Stream pipeline shut down. They could reach 800p a therm, and on Friday of last week they were 320p. European prices have risen by nearly 400% over the past year already, and the UK relies on gas for approximately 40% of its power generation—even more on the coldest days when demand increases and wind generation is low. The 2017 BEIS report included a scenario of the complete cut-off of Russian gas and concluded that the UK could see significant unmet demand if the cut was prolonged and continental European countries paid whatever was necessary to keep gas flowing. In the most extreme scenario, this could result in 28% of demand being unmet and lead to cut-offs or rotations of supply.

The Bill, as we said at Second Reading, is a pick and mix of things thrown together; it lacks ambition and an overarching theme designed to tackle these issues. There is no reason to believe that the current energy crisis will not happen again as the impact of global warming is a long-term issue.

Consequently, our amendments would, first, set out a purpose for the Bill by increasing resilience and reliability of energy systems across the UK; support the delivery of the UK’s climate change commitments; and reform the energy system. Secondly, they would bind the Secretary of State and the public authorities to these purposes, to our international commitments on climate change, and to the desirability of reducing costs and alleviating fuel poverty and securing a diverse and viable long-term energy supply. They would require the Secretary of State to designate a statement as a strategy and policy statement with regards to the purpose of the Act and require the Secretary of State to review both the strategy and the policy on a five-yearly basis. This would, in turn, force successive Governments into long term thinking, widen the impact and ambition of the Bill to address both short- and long-term issues, and help to ensure that, for the future, action does not come either too late or too little to solve a crisis.

I turn briefly to the other amendments in this group. Amendment 5 in the name of the noble Lord, Lord Moylan, adds a new clause requiring an assessment of the cost of achieving net zero and contrasting this with achieving net zero by later dates. Not achieving net zero by 2050 would be a breach of our international agreements and would be hugely damaging to health, livelihoods and human security, as well as our reputation on the global stage. The cost feasibility of not acting by 2050 and leaving net zero until 2065 or 2080 would be incomparable.

Amendment 6 in the name of the noble Baroness, Lady McIntosh, makes energy security the primary objective of the Bill, and while we agree with the importance of this objective, we would point to the wider focus our amendments require of the Bill. Amendment 7 in the name of the noble Lord, Lord Ravensdale, focuses on increasing the resilience and reliability of energy systems, supporting the UK’s climate change commitments, and reform of the UK energy system while minimising costs to consumers—protecting them from unfair pricing—and requires the Secretary of State to report annually to Parliament on these matters. This links in well with our amendments.

Amendment 231 in the name of the noble Lord, Lord Moylan, probes the intentions behind the Government’s proposal to alter the current pricing system of wholesale electricity based of the marginal cost of the last source of supply. I would be interested to see what lies behind the Government’s rationale for this change. Amendment 242 in the name of the noble Lord, Lord Ravensdale, sets out a national electrification and power plan; this links in with opposition thinking.

According to McKinsey, renewables could produce more than half of the world’s electricity by 2035 at lower prices than fossil fuel generation. On 18 May 2022, the EU presented the REPowerEU plan to end its dependence on Russian fossil fuels and tackle the climate crisis through energy savings, diversification of energy supply and accelerated rollout replacement of fossil fuels in homes, industry and power generation by renewable energy sources. The EU plan includes a massive scaling up and speeding up of renewables—solar, heat pumps, hydrogen, biomethane—which is not present in the Bill, and the EU plan suggests that replacing coal, oil and natural gas in industrial processes will reduce greenhouse gas emissions and strengthen security and competitiveness. Energy savings, efficiency, fuel substitution, electrification and an enhanced uptake of renewable hydrogen, biogas and biomethane could save up to 35 bcm of natural gas by 2030 on top of what is predicted under the Fit for 55 proposals. The UK must not be left behind. We must scale up our ambition. I beg to move.

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[Lord Callanan (Con)]

I do not think it is important to do that at this stage; we have published the consultation, we are closely analysing responses, as the noble Baroness will understand. It is a difficult area, it is a complicated area, there are a number of potential ramifications, and we think it is worthy of consideration. If we took a power now, that might have a very destabilising effect on the market and on the amount of investment that is flowing into many of the sectors, so the Government’s position at the moment is that we do not think that is necessary or desirable.

I reassure noble Lords that the addition of electrification to the Energy Bill is also unnecessary. The net-zero strategy sets out the Government’s view on how electrification can enable cost-effective decarbonisation in transport, in heating and in industry—to that extent, I agree with the noble Baroness, Lady Worthington, and the points that she made—along with our approach to deliver reliable, affordable and low-carbon power. The energy security strategy accelerated, as I am sure the noble Baroness is aware, our ambitions for the deployment of renewables for nuclear and for hydrogen. I can assure noble Lords that the Government will never compromise our security of supply: that remains our primary consideration. But our understanding of what the future energy system will look like and the level of the demand that we will need to meet through electrification will essentially and inevitably evolve over time. So, we are not targeting a particular solution, but we rely on competition to spur investment in the different technologies and new ways of working, and new technologies such as more efficient batteries et cetera are coming onstream every day. We will closely take all these matters under consideration. We take the view that the Government’s role is to ensure the market framework is there and that encourages effective competition and, at the same time, delivers a secure and reliable system.

Finally, let me thank the noble Lords, Lord Howell and Lord Teverson, the noble Viscount, Lord Trenchard, and the noble Baronesses, Lady Jones and Lady Hayman, for their valuable contributions to the debate. I assure my noble friend Lord Howell that we are working internationally with the US, with the EU and with our other partners to produce a secure and reliable energy system together. In response to the noble Viscount, Lord Trenchard, I am sure he will be pleased to hear that through the £385 million advanced nuclear funds, we are providing funding to support research and development for precisely the small modular reactor designs that the noble Viscount wishes to see, and we are progressing plans to build an advanced modular reactor demonstration by the early 2030s at the latest. Therefore, with the reassurances that I have been able to provide, I hope that noble Lords will not press their amendments.

[Lord Lennie (Lab)]

My Lords, first, I apologise for not thanking the Minister for meeting us earlier today; that was helpful. To answer one or two points, the noble Viscount, Lord Trenchard, asked about what Boris Johnson said when he was Prime Minister—up to yesterday, or today. He raised questions about power stations being built and the figure of one a year for however many years necessary, and not being sure what power stations there were. The PM was never really good on detail and I think this proves that point. That does require some clarification.

The bigger point raised by the noble Lord, Lord Howell, and the Minister was in relation to the preambles. They asked: why these preambles? They are a combination, if you like, of the preambles to the climate change and sustainability Act and the Energy Act 2013, as the Minister pointed out. They seek to give some definition, some guidance, to what the Bill is intended to achieve, as opposed to its rather rambling, ongoing, imprecise nature. It is not so much that the Bill is objectionable; it is just not adequate to achieve what it intends.

We will look at this before Report. With those few comments, I beg leave to withdraw my amendment.

Amendment 1 withdrawn.

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[Lord Lennie (Lab)]

My Lords, Amendments 11,12 and 13 in my name would all strengthen the relationship between Ministers and the economic regulator by insisting that the Secretary of State and the economic regulator are bound by the listed regulatory principles and the need to contribute to achieving sustainable development rather than just having regard to them. Further, they would oblige a Minister to be bound by their duties as a Minister, as opposed to just having regard for them. They would also require the economic regulator to be bound by the need to assist the Secretary of State, compliant with its duties and targets. It is not sufficient to have regard to these matters; it is important to be bound by them. Can the Minister say what “have regard to” means if not to be bound by them?

Amendments 15 and 16 espouse that the Bill does not specifically include carbon capture usage. To add to the example given by the noble Baroness, Lady Worthington, in January 2021, the major US oil company Chevron announced that it had made investments in the San Jose-based corporation Blue Planet Systems—then a start-up—which manufactures and develops carbon aggregates and carbon capture technology intended to reduce the carbon intensity of industrial operations. Blue Planet Systems manufactures carbon-based building aggregate from flue-gas-captured CO₂. These amendments aim to encourage the use of captured carbon as opposed to its storage.

[Lord Callanan (Con)]

My Lords, I thank everyone who has contributed to this short debate. Addressing the amendments in turn, I will start with Amendment 8, tabled by the noble Baroness, Lady Liddell, and my old friend the noble Lord, Lord Foulkes, who is very conciliatory today—I am suspicious; something has happened to him over the summer, but I am sure that we will get the old noble Lord, Lord Foulkes, back before we get much further into the debate.

This amendment seeks to amend the principal objective applying to the Secretary of State and the Gas and Electricity Markets Authority in respect of consumer protections. Under the current drafting of this principal objective, it is for the Secretary of State or the economic regulator to protect the interests of consumers who they consider may be affected by regulatory decisions. This drafting is intended to ensure that the economic regulator and Secretary of State have discretion as to the consumer impacts that are taken into account. While the noble Lord’s and the noble Baroness’s amendment is intended to ensure that only actual or likely impacts are taken into account, we consider that the existing drafting already provides for this. Therefore, I submit that the amendment is unnecessary.

I turn next to Amendment 9, which is also in the name of the noble Baroness, Lady Liddell, and the noble Lord, Lord Foulkes, joined on this occasion by the noble Baroness, Lady Bennett. The amendment as drafted would place an additional principal objective on the Secretary of State and the economic regulator to assist in the delivery of the net-zero objective. I know that we have had this discussion on a number of Bills, but I will reiterate that, under the Climate Change Act 2008, the Secretary of State is already bound by law to ensure that the targets to reduce greenhouse gas emissions are met.

Under Clause 1(6), the economic regulator is required to have regard to the need to assist the Secretary of State in complying with his duties to achieve carbon emissions reduction targets and to have regard to these targets in each of the devolved Administrations. I therefore submit that the economic regulator is already required to take these net-zero targets into account in its regulatory determinations.

Next, I turn to Amendment 10, proposed by the noble Lord, Lord Teverson. This amendment seeks to ensure that cross-subsidy of carbon dioxide transport and storage activities, from users of other networks, is avoided. Clause 1 of the Bill establishes the Gas and Electricity Markets Authority as the economic regulator of carbon dioxide transport and storage. It also establishes the principal objectives and general duties for the Secretary of State and the economic regulator in the exercise of their respective functions in relation to the economic regulation of carbon dioxide transport and storage.

The principal objectives in Clause 1 include protecting the interests of current and future users of the network and those of consumers. In relation to the regulation of gas and electricity, the Secretary of State and the Gas and Electricity Markets Authority remain bound by the principal objectives to, respectively, protect the interests of current and future consumers in relation to gas conveyed through pipes, and in relation to electricity conveyed by distribution systems. Different principal objectives are appropriate to reflect that the objectives for carbon dioxide transport and storage networks are different from those of the gas and electricity networks.

Under the provisions in the Bill, the economic regulator should be able to take into account, in its decision-making in relation to CO₂ transport and storage activities, any impacts on users of gas and electricity networks that may arise from those decisions. I hope that the noble Lord is sufficiently reassured on this point.

I move on to Amendment 11, tabled by the noble Lord, Lord Lennie, and the noble Baroness, Lady Blake. This seeks to ensure that the Secretary of State and the Gas and Electricity Markets Authority are bound by the principles of regulatory best practice and the need to contribute to the achievement of sustainable development. Clause 1 sets out the principal objectives and general duties of the Secretary of State and the economic regulator. The principal objectives are complemented by statutory duties on the Secretary of State and the economic regulator to have regard to certain matters. This includes having regard to principles of regulatory best practice and the need to contribute to the achievement of sustainable development. To have regard to these matters means that the Secretary of State or the economic regulator, as the case may be, must give genuine attention and thought to these matters.

In a complex sector with varying objectives that can sometimes conflict, it is important that the regulator’s duties strike the right balance between setting out all relevant issues and considerations, while giving some necessary discretion to the regulator to balance those considerations in its decision-making process and to have sufficient authority and independence in that decision-making. I hope that explains the point for the benefit of the noble Lord, Lord Lennie.

The formulation of the statutory duty as proposed by the noble Lord and the noble Baroness in our view risks compromising what is quite a delicate balance. The greater the number of statutory duties, and the more binding their nature, the more difficult the act of balancing the different, possibly conflicting, duties becomes. I hope that provides sufficient reassurance.

Amendments 12 and 13, again from the noble Lord, Lord Lennie, and the noble Baroness, Lady Blake, also seek to amend the statutory duties applying to the Secretary of State and the Gas and Electricity Markets Authority to ensure that the greenhouse gas emissions reduction targets under the Climate Change Act 2008 are a binding consideration in regulatory determinations. In relation to Amendment 12, as I have already set out, under the Climate Change Act the Secretary of State is already bound by law to ensure that the targets to reduce emissions are met. We therefore do not consider that this amendment is necessary.

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[Lord Teverson (LD)]

My Lords, I welcome very much that we have moved on to the area of enforcement because, if there is one thing that is true in anything to do with the environment, we make legislation—very effectively, often—but our enforcement does not work, because of either lack of will or lack of resources.

I would like assurance from the Minister, if possible, that the regulator will be resourced enough—I would be interested to know what conversations have taken place over this—to make sure that enforcement does take place. Of course, for enforcement to happen, particularly in physical facilities, there needs to be inspection. I would be interested in understanding who will be inspecting and what the resource level is likely to be.

I come back to a very good point made by the noble Baroness, Lady Blake of Leeds, on safety, which was not answered by the Minister earlier. CO₂, although not toxic like carbon monoxide, is a gas that, if exposed, can be suffocating. I would like to understand how enforcement on subsea storage facilities can take place.

Enforcement is good, but my questions are these: how will it be resourced, what is the programme for it and can it happen sufficiently to ensure safety?

[Lord Lennie (Lab)]

My Lords, the government amendments appear to correct an oversight in the Bill. If noble Lords are confused then so am I. I am not entirely sure what the Minister was saying, but it appears to me that there was a stage missing in the original drafting of this Bill and the attempt now is to put in that stage—which is, in effect, a final warning to licence holders to act in specific ways in order to become compliant. If that is right, then I understand it and I do not oppose it, but I want to make sure that I understand correctly what the Government are trying to do. If I am right then, other than to point out the original omission, we do not oppose these measures; we just want clarification of what is being put into the Bill.

[Lord Callanan (Con)]

I am happy to provide the reassurance that the noble Lord, Lord Lennie, asks for. It was simply a matter where, originally, we intended to take a power to do this through secondary legislation but, as we got to a later stage of drafting on the Bill, we thought that it would be more appropriate to put it in primary legislation. That is normally something that the House asks us to do. We were, on this occasion, trying to pre-empt some of the points that may be made by Peers to say that we should not do so much under powers and secondary legislation and should put it in the Bill—that is in fact what we are doing.

With regard to the point made by the noble Lord, Lord Teverson, on resourcing, it is very early days—we have not even set up the regulator yet—so I cannot give him any specific figures on what resourcing the regulator will have. The Treasury will no doubt want to have considerable input into this, but we will want to make sure that it is appropriately resourced and that we have the appropriate technical abilities, technical inspectors and so on to make sure that this activity is appropriately licensed and enforced and, of course, is safe for operators, personnel and the public.